It's a question often heard at the grocery store check-out line: Would you like paper or plastic? Club owners and members are faced with a similar question when it comes to dues payments. Should members pay with paper (in the form of a check or checking account withdrawal) or with plastic (in the form of their credit or debit card)? More and more members are saying plastic — and that answer is costing club owners.

According to the 2007 edition of the “ATM & Debit News EFT (electronic funds transfer) Data Book,” credit card usage rose from $16.9 billion in 2000 to $24.2 billion in 2006. Debit card usage has had a more dramatic increase and eclipsed credit card usage in 2006 for the first time. Debit card transactions totaled $8.4 billion in 2000 and $26.6 billion in 2006.

Five years ago, 35 percent of transactions in health clubs were conducted using credit cards, and 65 percent were automated clearing house (ACH) transactions, or transactions taken through a person's checking account, according to a representative at a software company that serves health clubs.

Today, those percentages are reversed, he says, with 65 percent coming from credit cards and 35 percent from ACH transactions.

Some observers say that the increase in credit card payments stems from the lagging economy and the fact that people want to cash in on the points or rewards programs that credit card companies offer to customers.

However, in the fitness industry, mistrust may be another reason. Herb Lipsman, a health club consultant and the CEO of The Health Club Co., Houston, says people are not comfortable giving other people access to their checking accounts.

“I guess they feel differently about a major credit card because if they want to dispute the charge, they can usually get that turned around,” Lipsman says. “[Credit card companies] will put the burden back on the vendor to prove that it was a legitimate charge. It's more difficult to do that on a checking account, where the burden is on the customer.”

The club industry as a whole does not have a good reputation for dealing with member billing issues, Lipsman adds.

“The general public has a wariness of giving out their checking account information until they've gotten to know the club pretty well,” he says. “If you're a little bit wary of having somebody have access to any of your accounts, then you're going to choose a credit card. From the customer's perspective, that's a better program, but it also is more costly to the club.”

The Cost of Plastic

What's the difference for club owners if members pay by credit card rather than through ACH? Plenty. For each transaction, credit card companies usually require merchants to pay them an extra 2.5 percent to 3 percent of the charged amount as a fee. At 3 percent, a $50 monthly membership paid by credit card will cost the club owner an extra $1.50, plus a nominal transaction fee of about 20 cents. An ACH transaction usually costs the club owner anywhere from 10 cents to 25 cents, with no percentage added.

Debit card transactions have a slightly lower percentage rate per transaction than credit cards. Even though money is taken out of a checking or savings account through debit cards, they are treated much the same way as a credit card transaction and cost the club owner more than an ACH transaction. At 2 percent, a debit card transaction for a $50 monthly membership costs the club owner $1, as opposed to the 25-cent ACH transaction.

The solution, one software representative says, is for club owners to encourage members to pay through their checking account and to compensate salespeople more for securing a membership through an ACH transaction.

The five Millennium SportsClubs, owned and operated by Salutary SportsClubs in northern California, accept either pre-paid membership dues for a year or dues through ACH transactions. They do not accept credit card payment for membership dues, says Constance Salisbury, vice president, chief technical officer and director of human resources.

Salisbury adds that the company saves about $65,000 a year in credit card transaction fees, based on the assumption that half of Millennium's 10,000 members would pay their dues with a credit card. The company actually would save twice that amount, she says, when overhead costs associated with processing credit card memberships are added in. Millennium, which has an average membership rate of $125 per month, accepts the risk of losing a membership because of its stance on credit cards, Salisbury says.

“It's throwing away money, essentially, if you use a credit card,” Salisbury says. “Why give somebody else the money when we can have it on our bottom line? We're sticking to our guns, and it's working for us.”

Millennium SportsClubs does take credit cards at its pro shop and for other point-of-sale transactions, but even on those occasions, the use of debit cards is encouraged, Salisbury says.

East Bank Club, Chicago, did not start accepting credit cards for EFTs until five years ago, says CFO Dale McCarrell. Today, 50 percent of East Bank Club's members pay through an EFT — 40 percent by credit cards and 10 percent through ACH transactions, McCarrell says.

The other 50 percent of East Bank Club members still make their payments the old-fashioned way — mailing in a check or dropping it by the club, McCarrell says.

“My original projection [for EFT transactions] was that I would have 10 percent still doing the bank accounts and 20 percent of our members still doing the credit cards,” McCarrell says. “It's doubled my expectations in the last five years, and we see that slowly creeping up every month. Five years from now, I would probably say only 20 percent [will pay by check].”

For club executives like Lipsman, McCarrell and Work Out World's Stephen P. Roma, the costs of increased credit card usage is simply the cost of doing business. Eighty percent of Work Out World members across eight New Jersey clubs pay their dues by credit card, Roma says.

“People are going to do what they want to do,” Roma says. “We've taken the approach that [the club will accept] whatever method they want to pay us by, provided that it's electronic. We really don't want anybody coming in once a month making payments because we just know that's doomed for failure. When you're in the $30, $40, $50 range of dues monthly, the cost to collect on some of these things can just skyrocket with labor costs these days.”

EFT transactions of all kinds — credit cards, debit cards and ACH — have made business more efficient for club operators. East Bank Club and Work Out World have reduced their administrative staffs by 1 ½ people, McCarrell and Roma say, because of the increased EFT usage. Millennium, which began accepting ACH transactions in 1991, has gone from one bookkeeper and support staff at each of its clubs to one bookkeeper and two support staff members for the entire company.

Fewer mailed-in checks also decrease the amount of “selling” required by club staff.

“Every time somebody cuts a monthly check, you almost have to be doing a sales job,” McCarrell says. “That individual is going through, ‘Am I going to the club? Am I getting value out of my club?’ By going directly to a credit card or their bank account, you avoid that sales job. If someone is not using the club and not getting value out of it, they may eventually quit, but they may not quit as quickly [if they pay by credit card].”

McCarrell adds that because of more EFT transactions, East Bank Club receives money quicker, retention is higher and its bad debt has been reduced. Instead of incurring $20,000 of bad debt, McCarrell says East Bank Club is incurring $10,000 of bad debt.

“Let's say you owe me $500, and if I have to wait for you to send me a check, I'm going to probably wait a while,” he says. “If I say, ‘Give me your credit card number over the phone,’ I'll process it, and I can get it paid right away.”

That's just another reason that in the future, checks may become extinct altogether. However, considering the fees attached to credit and debit card payments, club owners can only hope that ACH transactions won't disappear along with them.

Billing and Accounting Companies

Billing and accounting systems can often help club owners with their payment processing. The following is a list of names of some of the billing and accounting companies that serve the fitness industry: